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November 2011 posts

Wishful Dreaming versus Pragmatic Realism

Jonathan B. Wight

Via Krugman, here's Alan Greenspan's accolade to the financial markets in 2005:

These increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter-century ago.

If only that were so. What's missing from this ideology of faith is a healthy dose of conservative skepticism, and a hard-headed pragmatic response to it—that is, "rules of thumb" developed over generations about minimizing moral hazard and separating sources of contagion (such as firewalls in buildings, akin to the Glass-Steagall Act). That such regulations impinge on the liberty of a few is true, but this small infringement acts as an insurance policy for society at large.

Adam Smith was well aware of the conflict between financial speculation, excessive risk taking, and the negative externalities imposed on broader society. In advocating for restrictions on bank notes he argues:

To restrain private people, it may be said, from receiving in payment the promissory notes of a banker, for any sum whether great or small, when they themselves are willing to receive them, or to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed (Smith, The Wealth of Nations, 1981 [1776], 324).

In sum, we succumb to poor economics when we throw out the sensible institutions of the past, not well understanding their role or function in maintaining the stability of the whole system.

ADDENDUM: I just discovered the article, "Modernizing Conservatism" by Steven Hayward of the American Enterprise Institute. He seems to support the pragmatism I've been discussing above:

By allowing their well-reasoned and often well-founded critiques of government action to metastasize into a categorical rejection of all prospective government action, while continuing to deny the basic political economy of the welfare state, conservatives increasingly find themselves in an ideological and practical straightjacket…. conservatives must rethink their sweeping rejection of public investments in public goods such as science research and useful infrastructure. Once upon a time, conservatives supported large infrastructure projects, such as dams, water projects, the interstate highway system, and the Apollo project. It is generally forgotten now that President Reagan supported both the international space station and the superconducting supercollider.


Healthier Foods Increase Profits

Jonathan B. Wight

Lee-Lee Prina, a senior editor at Health Affairs and manager of the GrantWatch Blog, reports on evidence that companies that sell healthier food products make higher profits. Her blog supplies a number of other interesting links.

Once a critical mass of consumers pay attention to health, company attention will likewise turn to making profits from health. Let the market rule by empowering people to make their own healthy choices! Having said that, nutrition labeling is one of the best things that has allowed me, as a consumer, to assess salt, fat, and other ingredients. While it would have been better if the market had voluntarily coalesced around a sensible set of labeling guidelines, they never did, and the FDA finally stepped in. The labeling laws are not perfect—nothing is—but they are better than the hodgepodge of self-reporting. And yes, I know that companies routinely find ways around the law.

Nor am I endorsing food labeling in restaurants; there are other ways to handle that. But I would endorse some paternalism in the public schools, such as limiting pizza and French fries, and banning colas. I guess you can tell I grew up in the shadow of my dad's experiences in the depression. Spending an extra dollar or two each day on sugar water seems obscene, especially in an obesity epidemic. And some paternalism is justifiable when kids are involved: there is a social contagion effect, as in any school environment. If one kid has a cola, all will want one. Let's ban the whole lot! Key problem: Coca Cola and Pepsi have paid school districts for the monopoly rights to access their students. Hence there is a moral dilemma: do we allow Coke and Pepsi to "bribe" their way into schools?


Mont Pelerin in the Rear-View Mirror?

Jonathan B. Wight

David Warsh, in a column entitled, "Still an Overgoverned Society?" reports on the beginnings of the Occupy Wall Street movement and its connection with anarchists, and contrasts that with the rise of the Mont Pelerin society.

Anyone who appreciates long cycles of historical analysis will recognize that success eventually breeds over-stretching and hence an inevitable backlash. I've never studied Hegel, but the dialectic of thesis, anti-thesis and synthesis seems to be at work. For example, I remember being somewhat shocked when a Nobel Prize was created in economics (technically it's the Sweden's central bank's Prize in Economic Sciences in Memory of Alfred Nobel). In the powerful sway of Keynesian economics in the 1960s, it appeared that economists were glorified as the new physicists. How little they knew!

One group likely did know the Nobel was something of a sham, and this was the Mont Pelerin Society (even as several of their members won the prize). The hutzpah of economists claiming to know enough to do discretionary fine-tuning is now accepted as a fantasy, and led to the rise of the Austrians and other skeptics. But the Pelerin's own ideological excesses (or those of their followers) may lead to a similar backlash.

Here is David's conclusion:

Believing that societal norms move in long pulses, that a gradual turning has begun, I have to say I am still heartened by the excitement with which Occupy Wall Street has been received.  Its inner story is certainly a disappointment:  the tenets of "contemporary anarchy" are a weak foundation on which to build, but they express a powerful longing for a time in which the power of money will be reduced. Maybe it's a spiral instead of a zigzag; but the direction is slowly changing.  The road from Mont Pelerin is in the rear-view mirror. The next part of the journey has begun.

--David Warsh, www.economicprincipals.com (early edition, November 27, 2011, emphasis added)

The next part of that journey will not renounce markets, I believe, but will introduce pragmatism in establishing institutions that work with markets to achieve various goals of society. I interact each semester with excited, energetic future entrepreneurs: let's not kill that flame even as we seek to address issues of inequality and justice.


Adam Smith, the virtues, and motivation crowding out

Mark D. White

An article in the latest issue of Politics, Philosophy & Economics (10/4, November 2011), discusses the contrast between higher and lower virtues in Adam Smith's thought, in particular concerning the market, and links this to modern thinking in economics and psychology on motivation crowding out:

"Higher and Lower Virtues in Commerical Society: Adam Smith and motivation crowding out"

Lisa Herzog

Abstract: Motivation crowding out can lead to a reduction of ‘higher’ virtues, such as altruism or public spirit, in market contexts. This article discusses the role of virtue in the moral and economic theory of Adam Smith. It argues that because Smith’s account of commercial society is based on ‘lower’ virtue, ‘higher’ virtue has a precarious place in it; this phenomenon is structurally similar to motivation crowding out. The article analyzes and systematizes the ways in which Smith builds on ‘contrivances of nature’ in order to solve the problems of limited self-command and limited knowledge. As recent research has shown, a clear separation of different social spheres can help to reduce the risk of motivation crowding out and preserve a place for ‘higher virtue’ in commercial society. The conclusion reflects on the performative power of economics, arguing that the one-sided focus on models of ‘economic man’ should be embedded in a larger context.


Paternalism on the Farm

Jonathan B. Wight

The Labor Department wants to change work rules for kids on the farm (see summary here). In particular, it wants to take away all the fun, by banning kids from driving tractors and playing with dangerous tools. I don't mean to be flippant: "The fatal-injury rate for all U.S. workers is 3.5 per 100,000 workers. The rate for 15 to 24 year old workers in agriculture is nearly six times higher at 21.3 deaths per 100,000 workers."

Justification for the new rules rests on scientific evidence about maturation: "...the prefrontal cortex is the last part of the adolescent brain to fully mature and that the process is not completed until the early twenties or beyond. With that maturation, the executive functioning of youth is fine-tuned, improving their ability to understanding future risks and impulsive actions."

My dad grew up for some of his youth on a farm. He began to drive the family car, and be a valuable support to the family, when he was 12 years of age. One story he told was of racing in the family car to evade bootleggers when he was 14. Probably because he imprinted on motoring at such an early age, he was a phenomenal driver throughout his life. Think of young teenagers' motor skills getting honed in front of game machines today. Young people of old likewise learned the arts of farming and operating equipment early on so that it became easy and instinctual.

My father's experience is anecdotal, and the data cited above on fatalities is hugely instructive. Not every young person on a farm was as lucky as my dad, who got through his scrapes without serious injury.

The Labor Department's new rules would exempt young people working on their own family farms—thus parents can still bond with the sweat of their kids if they choose. But young people who want to work on other people's farms are out of luck—which means the lost opportunity to be mentored, to develop life skills, and to inculcate virtuous habits of industriousness and hard work. My initial reaction is to feel disappointed by this proposed ruling, but the astronomically high death rates of young people seems to indicate that reasonable safety precautions are not being observed by parents or supervisors. Can anyone explain this apparent lack of oversight?

Seems strange that if adolescent brains don't fully mature until the early twenties or beyond, that the U.S. military accepts teenagers at age 17 (with parental consent) and outfits them with M-16 rifles and puts them in dangerous situations. Is this supreme hypocrisy?

By the way, the military death rate in 2004 was about 95 per 100,000 (excluding illnesses). Death rates since then have likely risen. One explanation for the high death rate is given here:

I spent a career in Marine aviation, often working 12 to 15 hour days, six or seven days a week, in daily contact with hazardous chemicals and huge physical stresses. There was repeated manual lifting of bombs and other heavy items, little sleep, high stress on the flight deck or flight line. Imagine what infantry go through. The list would be almost endless.

Poor diet, little sleep, physical and mental stress, loss of family for long periods, exposure to hazardous materials, poor medical care, dangerous work and life habits – those were a way of life for my generation. The mission always comes first, before family, before self. There is no excuse for going to the doctor unless you're dead, and then you better have a chit. Physical ailments often go untreated or are self-treated.

Shocked? Wake up! Get out from behind that desk, put on a pack and see the world Marine-style for a few months. Do the work, be part of the mission, feel the stress, and then go back and look at the numbers.

The bottom line is, the Labor Department won't let you do dangerous work as a teenager… unless you do it for the Pentagon.


Smith and Rousseau—Strange Bedfellows?

Jonathan B. Wight

Dan Klein at George Mason has provided a fine review of Dennis Rasmussen's book, The Problems and Promise of Commercial Society: Adam Smith's Response to Rousseau (2008).

We know that Adam Smith borrowed liberally from other writers, usually without adequate citation, and it is interesting to speculate how much of Smith's critique of commercial society came from reading Rousseau. Rasmussen's book, and Klein's review, can help provide an answer to that question.

While Rousseau was pessimistic about the outcomes of commercial life, Smith was able to see a brighter side—particularly the virtues stimulated by competitive markets and social interaction. According to Klein, Rasmussen eventually has Smith warmly praising Rousseau, even though distancing himself from Rousseau's excesses.

Klein prefers to see Smith's "praise" as the faint admiration toward someone he is actually mocking. Although not mentioned by Klein, Smith was capable of simultaneous praise and mockery, as witnessed by his treatment of Dr. Quesnay in The Wealth of Nations. While Smith was going to dedicate WN to Quesnay (but didn't because of Quesnay's death), he also mocked the "speculative" Quesnay for treating political economy as he would a human body (WN IV.ix.28).

Understanding how the critiques of Smith toward commercial society may, in part, originate in Rousseau is a valuable contribution to our understanding. It also provides greater insight into Smith's formulation in which commerce can be a force for good in the right institutional settings.

I tend to side with Klein in his harsher analysis of Smith's views toward the man of Geneva. Rousseau was a scoundrel and an ungrateful one, who lied about Smith's best friend Hume. Smith's sympathy would be with Hume, regardless of Rousseau's brilliance. Klein also correctly notes the many times Smith criticizes someone of smooth "eloquence" as being a charlatan.


The end of Adam Smith?

Jonathan B. Wight

Everyone loves a snappy title, so Jeremy Rifkin's "Saying Goodbye to Adam Smith at the Dawn of the Third Industrial Revolution" immediately caught my interest.

The thesis of the Guardian op-ed is that: "The great economic revolutions in history occur when new communication revolutions merge with new energy regimes." And, according to Rifkin, we are about to create a revolutionary green economy with an "energy internet."

Economists, Rifkin writes, are stuck with the wrong metaphors of the mechanics of physics. In such a world we can always move up or down the same supply curve (there is reversibility of economic activity). Hence, economists are ill-equipped to deal with or understand the coming transformation, which will acknowledge the role of entropy.

I have enjoyed some of Rifkin's previous work, such as the video The Empathic Civilisation. But here, Rifkin would have better served his reader to quote from the originator of the entropy idea: Nicholas Georgescu-Roegen, whose path-breaking book The Entropy Law and the Economic Process was first published by Harvard University Press in 1971—yes, before the first oil shock. In this article, Rifkin ignores the Bible of the bio-economics movement, suggesting to the reader that he (Rifkin) is the originator of these ideas. Well, perhaps Rifkin discovered them anew, but the ideas have long previously been in the headlines.

Georgescu was a protégé of Joseph Schumpeter and Georgescu's most famous student is the environmental humanist Herman Daly (not to imply that they saw eye-to-eye). Georgescu's reputation as a colleague and teacher at Vanderbilt was that of a tyrant (I got to Vandy in 1977, a year after he retired, to the great relief of all). But I did get to hear Georgescu deliver a few papers, and even had the nerve as a first year grad student to ask him a question. His answer was: "That is not as stupid a question as it may sound…" He also wrote one of the most interesting books I've read on agrarian economics, showing that peasants were not being irrational by excessively using family labor on small plots in his native Romania. Peasants are not stupid!

Rifkin, in addition to not citing Georgescu, never really makes a case against Smith. In short, he uses Smith's name to generate reader interest, but it is a "bait-and-switch" tactic. There is no end of Adam Smith.

[Thanks to my colleague Jeff Hass for providing the link to Rifkin's article.]


I may suck, but not as much as you

Mark D. White

Please excuse the flippant title, and get ready for a bit of a rant. (Listen--it's almost Friday, and it's been a rough couple of weeks.)

I'll start with a old joke: Two campers are in the woods when they spot a bear heading toward them. One camper starts running while the other bends down to carefully tie his shoes. The first camper yells back to his friend, "do you really think that will help you outrun the bear?" The second camper yells back, "I don't need to outrun the bear--I just need to outrun you."

I was reminded of that joke when reading a Real Time Economics blog post at The Wall Street Journal's site a couple weeks ago about a recent study on "last-place aversion." In the paper (available here), the authors report on experiments in which the participants were found more likely to take gambles that might boost their social ranking (rather than certain payoffs of equivalent expected value), and to forego costless action to help those worse off than themselves, the lower in the ranking they were to begin with. The authors use these results to support individuals' aversion to being at the bottom of the social ranking, preferring to have at least one person or group to look down upon.

I don't doubt the findings or the interpretation, but they sadden me. In fact, the entire concept of relative preferences and well-being disturbs me and always has. The idea that many (perhaps most) people base their feelings of satisfaction and happiness on what the folks next door have rather than on their own needs and desires--assuming they even have their own needs and desires--is ironically and tragically counterproductive in the aggregate. (On this I agree with Robert Frank, though not on his policy recommendations based on it.)

Maybe this unconscious desire to one-up our peers has an evolutionary basis--it would certainly seem to inspire a striving for material (and thereby reproductive) success--but it also seems to vary widely on cultural grounds (being much more pronounced in the U.S. than in Europe, for instance). (I thank Dr. Maryanne Fisher for her insights on this point.) But just because it's natural doesn't make it good or right--thank you, G.E. Moore--and just as we strive to counter other hardwired inclinations toward prejudice and oppression toward others, I would hope we would reject those which represent an attitude of disrepect toward ourselves.

It strikes me as horribly inauthentic to subsume your own standards of well-being, happiness, and satisfaction for other people's, especially if it leads to a counterproductive "race to the top" in which no one's intrinsic preferences are satisfied. I said as much here about two years ago (focusing on status goods like Starbucks coffee, which I now drink regularly, thanks to the same Dr. Fisher), so I won't rehash those arguments. Nonetheless... argh.

Don't get me wrong, researchers in psychology and economics do us a great service in highlighting these unconscious dispositions. But where are the voices crying out to restrain them, to orient our decision-making more towards activities that will satisfy our desires rather than simply make us feel good compared to our neighbors? Dr. Frank decries what Thorstein Veblen termed conspicuous consumption, certainly, but he focuses policy changes such as steeply progressive tax rates to "solve" the problem. This is to treat the symptoms rather than the disease (as behavioral economists are wont to do). Once we recognize our flaws we don't have to take them as given--but we have to make the effort.

And we shouldn't want for the people next door to do it first.


How does lack of desire compare to its satisfaction?

Mark D. White

A fascinating article in the latest issue of Utilitas (23/4, December 2011) by Toby Handfield (Monash University) titled "Absent Desires" takes up the issue of absent desire in relation to satisfied and frustrated desire, arguing that having absent desires is incommensurable with having satisfied desires:

What difference does it make to matters of value, for a desire-satisfactionist, if a given desire is absent, rather than present? I argue that it is most plausible to hold that the state in which a given desire is satisfied is, other things being equal, incommensurate with the state in which that desire does not exist at all. In addition to illustrating the internal attractions of the view, I demonstrate that this idea has attractive implications for population ethics. Finally, I show that the view is not subject to John Broome’s ‘greedy neutrality’ worry.

This has obvious relevance for Stoic ethics and normative population studies (as Handfield notes), but also Buddhist thought as well as standard welfare economics (for example, the measurement of well-being when demand is affected by advertising, creating a desire that was previously "absent").


Six fantastic ethics articles in December 2011 issue of Ratio

Mark D. White

The new issue of Ratio (24/4, December 2011) features six fantastic new articles for heavy hittrers in moral philosophy:

 

DEONTOLOGICAL MORAL OBLIGATIONS AND NON-WELFARIST AGENT-RELATIVE VALUES, Michael Smith

Many claim that a plausible moral theory would have to include a principle of beneficence, a principle telling us to produce goods that are both welfarist and agent-neutral. But when we think carefully about the necessary connection between moral obligations and reasons for action, we see that agents have two reasons for action, and two moral obligations: they must not interfere with any agent's exercise of his rational capacities and they must do what they can to make sure that agents have rational capacities to exercise. According to this distinctively deontological view of morality, though we are obliged to produce goods, the goods in question are non-welfarist and agent-relative. The value of welfare thus turns out to be, at best, instrumental.

 

RECALCITRANT PLURALISM, Philip Stratton-Lake

In this paper I argue that the best form of deontology is one understood in terms of prima facie duties. I outline how these duties are to be understood and show how they offer a plausible and elegant connection between the reason why we ought to do certain acts, the normative reasons we have to do these acts, the reason why moral agents will do them, and the reasons certain people have to resent someone who does not do them. I then argue that this form of deontology makes it harder to unify a pluralistic ethics under a single consequentialist principle in a plausible way, and illustrate this with reference to Rob Shaver's consequentialist arguments.

 

 

DEFENDING DOUBLE EFFECT, Ralph Wedgwood

This essay defends a version of the Doctrine of Double Effect (DDE) – the doctrine that there is normally a stronger reason against an act that has a bad state of affairs as one of its intended effects than against an otherwise similar act that has that bad state of affairs as an unintended effect. First, a precise account of this version of the DDE is given. Secondly, some suggestions are made about why we should believe the DDE, and about why it is true. Finally, a solution is developed to the so-called ‘closeness problem’ that any version of the DDE must face.

 

THE POSSIBILITY OF CONSENT, David Owens

Worries about the possibility of consent recall a more familiar problem about promising raised by Hume. To see the parallel here we must distinguish the power of consent from the normative significance of choice. I'll argue that we have normative interests, interests in being able to control the rights and obligations of ourselves and those around us, interests distinct from our interest in controlling the non-normative situation. Choice gets its normative significance from our non-normative control interests. By contrast, the possibility of consent depends on a species of normative interest that I'll call a permissive interest, an interest in its being the case that certain acts wrong us unless we declare otherwise. In the final section, I'll show how our permissive interests underwrite the possibility of consent.

 

 

ENFORCEMENT RIGHTS AGAINST NON-CULPABLE NON-JUST INTRUSION, Peter Vallentyne

I articulate and defend a principle governing enforcement rights in response to a non-culpable non-just rights-intrusion (e.g., wrongful bodily attack by someone who falsely, but with full epistemic justification, believes that he is acting permissibly). The account requires that the use of force reduce the harm from such intrusions and is sensitive to the extent to which the intruder is agent-responsible for imposing intrusion-harm.

 

DOES MORAL IGNORANCE EXCULPATE?, Elizabeth Harman

Non-moral ignorance can exculpate: if Anne spoons cyanide into Bill's coffee, but thinks she is spooning sugar, then Anne may be blameless for poisoning Bill. Gideon Rosen argues that moral ignorance can also exculpate: if one does not believe that one's action is wrong, and one has not mismanaged one's beliefs, then one is blameless for acting wrongly. On his view, many apparently blameworthy actions are blameless. I discuss several objections to Rosen. I then propose an alternative view on which many agents who act wrongly are blameworthy despite believing they are acting morally permissibly, and despite not having mismanaged their moral beliefs.